Sunday, April 19, 2009

Bill Black Speaks Out on the Stress Tests

Bill Black, a former senior bank regulator and S&L prosecutor, is one of the few people with both the guts and knowledge to speak the truth about how the banking crisis is being mishandled, and principally by the people who caused it in the first place. When all we get is spin from Larry Summers and Tim Geithner, it's reassuring that at least one strong, reasoned voice is willing to speak the truth.

From the article that accompanied the video:

The bank stress tests currently underway are “a complete sham,” says WilliamBlack, a former senior bank regulator and S&L prosecutor, and currently anAssociate Professor of Economics and Law at the University of Missouri - KansasCity. “It’s a Potemkin model. Built to fool people.” Like many others, Blackbelieves the “worst case scenario” used in the stress test don’t go far enough.

He detailed these and related concerns in a recent interview with NakedCapitalism. But Black, who was counsel to the Federal Home Loan Bank Boardduring the S&L Crisis, says the program's failings go way beyond suchtechnical issues. “There is no real purpose [of the stress test] other than tofool us. To make us chumps,” Black says. Noting policymakers have long statedthe problem is a lack of confidence, Black says Treasury Secretary Tim Geithneris now essentially saying: “’If we lie and they believe us, all will be well.’It’s Orwellian."

The former regulator is extremely critical of Geithner,calling him a “failed regulator” now “adding to failed policy” by not allowing“banks that really need desperately to be closed” to fail. (On Saturday,Geithner said on Face the Nation, if banks need "exceptional assistance" in thefuture "then we'll make sure that assistance comes with conditions," includingpotentially changing management and the board, but did not say they'd be shutdown.)

Black says the stress test must also be viewed in the context ofGeithner’s toxic debt plan, which he calls “an enormous taxpayer subsidy forpeople who caused the problem.” The fact bank stocks have been rising sinceGeithner unveiled his plan is “bad news for taxpayers,” he says. “It’s thesubsidy of all history."

U.S. National Debt Clock

About Me

Pat has nearly 30 years of experience as a financial executive. He is a CPA and holds an MBA from MIT's Sloan School of Management, where he was a Sloan Fellow. Pat's research interests include investments, financial markets, leadership and ethics, innovation and business sustainability, I.T. strategy, corporate governance, economics, politics, and globalization.